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Debt consolidation might not fend off bankruptcy

Getting a debt consolidation loan could present a good strategy to someone in Kentucky struggling to keep up with debts, especially on credit card accounts. After paying off high-interest debts with a lower-rate loan, a person might achieve financial stability unless poor spending habits and unexpected bills undermine the plan.

This scenario unfolded for one man who had already gone through a bankruptcy in 2005. Ten years later, he acquired a five-year loan from his credit union for $17,000, which he used to clear out the debts on 10 credit card accounts. Although a lower 8-percent rate now applied to his debt and his monthly payment had gone down, he started to fall behind on payments a year later when financial hardships hit.

He took out payday loans to help make ends meet for his daughter, who was raising four children on her own. She had promised to repay him when she got a tax return for $5,000, but, after losing her job, she kept the money for herself. Out of options, the man accepted that he needed to address the situation with another bankruptcy. At this point, he understood that he had been giving in to impulses to buy things instead of sticking to a budget. He said he now delays purchases and makes sure to pay cash.

Discipline with money can be difficult to achieve, but a bankruptcy could allow someone to get a fresh start. A person who wants advice about managing debts could talk to an attorney. After reviewing the person's income, assets and debts, an attorney might recommend a Chapter 7 or Chapter 13 bankruptcy. When petitioning the court for protection, an attorney could develop a proposal that might protect assets like a home.

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